Making Money Talk, and Vice Versa: India’s Chat Wallet Wars

Money with chat, or chat with money?

When it comes to Internet companies that have succeeded in India, Paytm and WhatsApp have a special place. Paytm is India’s largest wallet app and already has the clout required in terms of financial transactions. The app processes millions of recharges and has a well established offline network of merchants and provides enough use cases to encourage people to maintain a good amount of balance in their Paytm wallets. WhatsApp, on the other hand, is now so well entrenched in India that there are WhatsApp groups for everything from schools to colleges to offices. There are less than 400 million internet users in India and more than 200 million WhatsApp users; this means that literally more than half the Internet users in India use WhatsApp.

Both companies, however, are now looking to expand their horizons. And become the WeChat of India.

The lure of conversational commerce

For those from the world where tech is largely absent, WeChat is a Chinese chat app run by Chinese tech giant Tencent. But there is more to it than just chatting. WeChat can also be used for booking movie tickets, hail cabs, and much more. In fact, WeChat is the only company that has been successful at what has popularly come to be known as conversational commerce.

Success at conversational commerce can be highly lucrative. According to this eMarketer article, WeChat’s ARPU is estimated to be around USD 7 and 25 percent of people open WeChat 11-30 times a day. This is the kind of engagement and monetization that every company dreams of in the age of mobility. Companies like Google and Facebook achieve WeChat’s kind of monetization and engagement through a plethora of apps but no one – repeat, NO ONE – has been able to achieve WeChat’s monetization as well as engagement through a single app.

India has for the better part followed an app consumption model similar to that of the US. While in China, people try and use apps that can perform multiple functions, people in India prefer using a single app for a single purpose. This has meant that apps in India tend to specialize in a single function just like in the US. So for example, a person looking for recharges is likely to use Paytm. Similarly WhatsApp, which is mainly about messaging and chatting, largely dominates the messaging scene in India.

Now, WhatsApp thoroughly dominates messaging in India and Paytm as of now is the uncontested player in terms of utility bill payments, offline payments, and more. Meanwhile, Amazon and Flipkart dominate the e-commerce segment in India. Having achieved domination in their fields, these players are now looking to broaden their horizons. They want to become the WeChat of India. But that is no easy task.

Adding chat to cash…

There has been news that Paytm is also planning to integrate chat in its app. But WhatsApp’s well-established presence in India leads to insanely strong network effects that are close to impossible to break.

A few years ago, when WhatsApp was a fraction of its present self in India, several chat apps like WeChat, Line, and Hike, tried extremely hard to break into the Indian chat market. They used everything from doling out free talktime to feature-loaded apps. None of it worked. WhatsApp never added more features or doled out freebies, yet its network effect during those years itself was strong enough to keep the app growing. Those same network effects that helped WhatsApp against WeChat, Line, and Hike, have only strengthened its base over the years.

So, even if Paytm integrates a clever cash back mechanism in its chat function, it’s difficult for me to see Paytm’s chat function being able to compete with WhatsApp in India.

…or adding cash to chat…

On the other hand, WhatsApp has been trying to do a Paytm. A test build of WhatsApp with UPI integrated has already leaked to the public for a brief period of time, and with the main Facebook app running out of ad space, Facebook is eager to start monetization of WhatsApp and Facebook Messenger.

WhatsApp’s edge in terms of network effects is well established. Literally, everyone who lives in India with a smartphone uses WhatsApp. It will not be surprising then to see WhatsApp gaining momentum in the payments space right from day one when it makes the UPI integration public. However, one daunting task in front of WhatsApp is to get merchants and utility companies sign up for its payment platform considering that one of WhatsApp’s goals includes becoming a platform for businesses.

Paytm has worked hard over the years to tie up with a vast variety of utility companies and offline merchants. Replicating the same won’t be easy for WhatsApp. Take, for instance, the fact that Airtel is yet to be supported by PhonePe despite the fact that it has been months since PhonePe launched. In fact, even Amazon’s latest mobile recharge beta within the Amazon app does not support Airtel. The chances seem even slimmer for WhatsApp as WhatsApp with its free VOIP calls and messages directly eats into Airtel’s revenue as a telecom operator. And let us not forget Airtel’s Net Neutrality debacle, courtesy WhatsApp.

I am highlighting Airtel so much because mobile recharges have become the least common denominator for online transactions, and with Airtel having close to 280 million subscribers in India, WhatsApp not supporting them would make it less attractive for close a fourth of the telecom subscribers in the country. Matching Paytm’s well established offline network would be a daunting task as well since it would require huge sums of capital and Facebook as a company has never involved itself in this kind of physical distribution.

Some would argue that WhatsApp’s main aim is to facilitate peer to peer transactions but in my opinion, peer to peer transactions are best facilitated on a platform that has enough well-established avenues for recurring spending and this is where Paytm truly triumphs. From mobile recharges to DTH recharges to broadband recharges, Paytm has so many recurring spending avenues that people have very little hesitation in storing money in their Paytm wallets, as they know that through one avenue or another, the money in the wallet would be spent. The very fact that people store money in their Paytm wallets makes it all the more attractive for peer to peer payments as transferring money from one’s Paytm wallet to another’s Paytm wallet is just a one-click transfer that happens in less than a second.

Compare this to WhatsApp which, at least initially, would come with little to no reason for people to store money, assuming there is a storage option. In a scenario where there is no storage option, every time a peer to peer transfer takes place, a person would have to enter his or her UPI PIN to transfer the money to the intended recipient. The recipient would then have to withdraw the money from their UPI ID to the bank account. All of which makes it a way more cumbersome process than the current peer-to-peer transfer system in Paytm.

…neither is easy, folks!

Both WhatsApp and Paytm are trying to enter into each other’s territories. While WhatsApp has the upper hand in terms of network effects as a chat app, Paytm holds the edge in terms of network effects as a wallet app. And this is what makes it difficult for each of them to get into the other’s zone. Not that this is likely to deter either of the players from their chart-with-cash ambitions. This could be one fascinating battle – the one for the crown of conversational commerce.

Viranch Damani Feature Writer Viranch is currently a B-Tech Engineering student. He is deeply interested in tech with a strong passion for telecom. Loves coffee and chocolates. He is on Twitter @Viranchdamani